LAISSE DE DEPOT

ET PLACEMENTDU LI EBEC

Annual Report 1986

CAISSEDE DEPOT

ET PLACEMENTDU QUEBEC

Twenty-FirstAnnual Report

ProfileThe Caisse de dépôt et placement du Quebec,a totally autonomous institution in its invest-ment management operations, was formedin 1965 to manage the funds arising fromvarious public pension and insurance plans. Itsmandate is to ensure that the funds under itsadministration generate a profit through soundinvestments and also to support Quebec'seconomic development. To achieve theseobjectives, it uses the best investment vehiclesavailable, including bonds, shares and con-vertible securities, mortgages and real estateinvestments.

The Caisse is one of North America's majorfinancial institutions. Its principal place ofbusiness is located in the heart of Montreal, afirst-class financial center.

Table of Contents

Highlights of the year 3

Board of Directors' Report 4

Report of Operations 6

The Economic Environment

6The American EconomyThe Canadian EconomyThe Quebec Economy

Asset Mix

10ReturnInternal ReturnTime-Weighted Return

Variable Income Securities 12SituationReturnCanadian EquitiesForeign EquitiesCorporate InvestmentsMedium-Sized BusinessesVenture Capital and the International SectorFlea] Estate Investments

Fixed Income Securities

19SituationBond InvestmentsMortgage InvestmentsMoney Market Investments

Depositors

23General FundIndividual Funds

Administration

29Administrative ExpensesHuman ResourcesData ProcessingCommunicationsBoard of Directors and Management

Combined Summary FinancialStatements

32Balance SheetStatement of Income and Expenditure

HIGHLIGHTS OF THE YEARlin millions or Odars) 1986 1985ASSETS UNDER MANAGEMENT

Total book value S 25,073 22,543Excess market value over book value

of investments 3,007 2,700

Total market value S 28,080 525,243

BREAKDOWN OF ASSETS UNDER MANAGEMENT

InvestmentsBonds $ I5,704 514,542Shares and convertible securites 8,474 6,821Mo rtgages 1,486 1,270Real estate investments 531 373Short-terni investments 1,405 1,798

Total investments 27,600 24,804Other assets 480 439

Total market value S 28,080 525,243

DEPOSITORS' HOLDINGS

Régie des rentes du Québec $ 13,558 $12,423Commission administrative des régimes de retraite

et d'assurances 6,332 5,438Régie de l'assurance automobile du Québec 3,843 3,291Commission de la santé et de la sécurité du travail 2,287 2,178Office de la construction du Québec 1,915 1,745Other depositors 13 13

Total depositors holdings 27,948 25,088Liabilities 132 155

Total market value S 28,080 $ 25,243

NET DEPOSITORS' INCOME S 2,965 $ 2,680

NET DEPOSITORS' WITHDRAWALS S 415 $ 359

INTERNAL RATE GE RETURN ON TOTALDEPOSITORS' HOLDINGS 13 5% 24%

THREE

Board of Directors' Report

Again in 1986, the Caisse de dépôt etplacement du Quebec successfully adminis-tered an extensive investment program underits dual objective of optimizing the return onits depositors holdings and supportingQuebec's economic development.

The Board of Directors is pleased to submitthe 1986 financial results of the Caisse dedépôt et placement du Quebec whose internalrate of return on total funds under manage-ment reached 13.5% during the year,representing a net gain of 9.3% over inflation.

The quality of returns obtained by theCaisse is measured in terms of the yieldexceeding the rate of inflation. It is noteworthythat the compound average annual rate ofreturn totalled 16% and 14,2% over the pastfour and eight years, respectively, while theaverage rates of inflation for the same periodswere 4.2% and 7.4%.

Income for 1986 reached almost $3 billion,an increase of some $300 million over theprevious year. This income includes $790 mil-lion in gains on sale of investments. TheInstitution has thus earned $17 billion in netincome since its founding.

This outstanding performance and substan-tial income have improved our depositors'holdings proportionately We should mention,however, that the Régie des rentes duQuebec continued to increase the level ofwithdrawals. Its requirements necessitated$556 million to be withdrawn from its$t5 billion in income.

The Institution's financial results ensuefrom judicious decisions made concerningthe balance to be maintained between thevarious investment vehicles, considering theevolution of the economy and the strategiesadopted for each market. The proportion ofvariable income investments rose by 4%in 1986, representing 28% of the total portfolioat book value.

A quick review of the year's operationsshows that the Caisse acquired $825 millionin new gouvernement du Quebec bonds andsome $342 million in new securities fromother Quebec public sector issuers. It has alsocontributed to the development and qualityof a secondary market for Quebec securities.Furthermore, U.S. and Canadian governmentsecurities represent close to 15% of thefixed income securities portfolio. These highliquidity securities, which are held on a tem-porary basis and for purposes of strategy andthe protection of the overall bond portfolio,have been efficient, yielding a 17% returncompared to 14.1% for the total bond portfolio.Moreover, profits of CA $212 million havebeen recorded on the trading ofthese securities.

To diversify the portfolio to reduce thedegree of risk and increase profitability, theBoard of Directors allocated substantial fundsto foreign investments during the year. Thestrong performance of foreign markets asopposed to the domestic market was in facta deciding factor. As a result, the foreignequity portfolio more than doubled in value,slightly exceeding the billion dollar mark,compared to $410 million in the previous year

The Caisses interest in foreign markets,however, is not only related to concernsabout the economic climate. First, the develop-ment of an international business networkleading to major industrial or financial reper-cussions and eventually interesting invest-ment opportunities is one of its goals. Second,the strong push towards the internationaliza-tion of financial markets, for fixed income se-curities as well as variable income securities,poses major challenges to all fund managers.The Institution believes this is an opportunityto become involved in the ever increasing andhighly dynamic activity of Quebec's financialand industrial communities, and of Montréal'sin particular.

The Caisse strongly intends to make itselfavailable to business people as well as cor-porations and to offer them its financial sup-port and expertise to encourage their devel-opment and success on increasingly norderlessmarkets. The support offered by our Institu-tion has not only affected transactionsin the $10 million and up range (Cascades,Memotec Data, Onex Capital, CDC LifeSciences), but has also been in the form of aseries of much lower capital outlays that areadequate to meet the funding requirementsof medium-sized businesses such as PaulMartin inc., Groupe Harricana, Auto Pointand Compagnie de Location d'équipementsCie. The Institution actively promotesits objective to increase its volume of busi-ness with medium-sized businesses andinvestments such as these.

Of course, the Caisse's considerable assetsallow it to enter into major financial transac-tions. But the very foundation of the economy,in Quebec and around the world in general,depends on thousands of small and medium-sized businesses for whom an amount of$500,000 remains as significant as it is from aprivate individual's standpoint. The Caisse'sstrong interest in medium-sized businesseswas again evident in its 1986 investmentprogram. Funds allocated to this type of invest-ment over the past few years now amountto some $225 million.

FOUR

The Institution wishes to participate in thesame circles as both medium-sized busi-nesses where growth is a very tangible pros-pect and financial and industrial giantswhere billions are the measuring unit, with thesame level of service quality and investmentprofitability.

During the year, the Institution's contributionto the improvement of its environment and,more particularly its preoccupation with thegeographic diversification of its investmentsin the province were reflected in its real estateacquisition program through its subsidiary,Societe Immobilière Trans-Quebec, in partic-ular, as well as its intense activity in themortgage sector throughout Quebec

In 1986, favourable market conditions result-ed in substantial funds allocations to invest-ments related to the Quebec constructionindustry. The volume of mortgage invest-ments reached a record high of $425 million innew loans. A total of $715 million was allo-cated to new construction projects, including$103 million in the residential sector.

The Caisse also successfully disposed ofsome of its interests in several large enter-prises such as Provigo, Noverco and Canron.These transactions were concluded withdynamic groups concerned with maintainingor intensifying the development of theseenterprises.

Furthermore, as a result of its numerousinvestments in the share capital of variousenterprises, the Caisse is constantly concernedabout the protection of shareholders' funda-mental rights, the openness of the manage-ment of these enterprises and the properoperation of financial markets. It is essential toremember, and circumstances call for thisreminder to be made, that the same treatmentand consideration be given to an enterprise'svarious categories of shares which carry thesame risk, and that voting rights be respect-ed. The Caisse also favours the principlewhereby shareholders should be representedon the board of directors proportionately totheir investment. The upholding of this basicpremise of democracy in an enterprise isfundamental for the protection of investors'legitimate interests and the proper operationof financial markets.

The members of the Board of Directorswish to thank all employees for their supportthroughout the year, which was one ofthe most active in our Institution's history,and express their deepest gratitude.

On behalf ofthe Board of Directors,

Jean CampeauChairman of the Boardand General ManagerMontreal, March 14, 1987

vt

The Economic Environment

Major currency fluctuations, together withsubstantial declines in interest rates and inthe price of certain raw materials, constitutedthe economic highlights of 198E. Economicgrowth slackened, particularly in Canada andJapan while inflation dropped sharply in theUnited States, Europe and Japan. Overall, thedestabilizing effects of these fluctuationsdominated; no country or region was able toreplace the United States as the engine ofwok growth.

Report ofOperations

SIX

The American Economy

;1(e

The United States economy grew for afourth consecutive year in 1986, but as in1985, the gross national product increased byless than 3%. Consumer spending gaveno indication of slowing down, and consumerseven reduced their savings rate to maintainspending levels. In contrast, the volumeof capital spending decreased from 1985to 1986 in response to the elimination of theinvestment tax credit and lower oil prices.

However, the basic reason for the Americaneconomy's weak performance was theincreased penetration of imports in U.S. mar-kets, restraining the growth of employmentand investments. The unemployment rate hasbeen hovering at around 7°/0 since the endof 1984. The continued deterioration of theU.S. trade balance was perhaps the greatestdisappointment of the year.

Since the U.S. dollar had started to slidesignificantly against the Japanese yenand European currencies as early as in March1985, it was hoped that the foreign tradedeficit would gradually be reduced. However,even though the dollar continued to slidethroughout 1986, no evidence of a turnaroundin foreign trade materialized. There is nodoubt, however, that the U.S. trade balancedeficit will improve with time.

TRADE BALANCE DEFICITIN THE UNITED STATESOn billions of dollars)

U.S. monetary policy was expansionary in1986. The Federal Reserve Board, which isresponsible for implementing this policy in theUnited States, lowered its discount rate fourtimes in an attempt to stimulate the economyIts expansionary policy was also aimed atsupplying sufficient liquidity to facilitate theadjustment of certain sectors to lowerenergy and grain prices.

Fiscal policy remained expansionary. Theadoption of a major tax reform which willmodify the tax burden of individuals and corpo-rations over the next few years was the mostsignificant development. As the plannedreform is revenue neutral, it will not resolvethe still disturbing government deficit prohlem.In these circumstances, the deficit can onlybe reduced as a result of sustained economicgrowth and a lower level of governmentspending.

Source Data Resources tnc

SEVEN

The Canadian Economy

International economic conditions had adevasting effect on Canada's economicgrowth. The fall of world oil and grain priceshave negatively impacted the economicperformance of regions where these sectorsare dominant as well as corporate profits andCanada's trade balance. Consequently Can-ada's economic growth slackened. The rateof inflation failed to drop however, remainingabove 4%. Consumer spending progressedwell, although not as much as in 1985 owingto the slower pace of employment and salarygrowth as well as to higher direct and indirecttaxes. Nevertheless, consumer confidencewas maintained. The decline in interest ratesand unemployment, as well as the stabiliza-tion of inflation, contributed to the dynamismof the residential construction sector.Housing starts reached 198,830 units in 1986,the best result of the decade.

The drop in corporate profits and world oilprices resulted in reduced corporate invest-ments. Non-residential construction, wheremost energy investments are concentrated,was the most adversely affected sector.

The decrease in the $17.5 billion trade sur-plus for 1985 to $9.6 billion in 1986 caused adeficit in the current account of over $B billionfor the year

This poor trade performance, Canada's dis-appointing inflation performance relative tothe U.S., as well as lower prices for oil andother raw materials, led to a widening ofinterest rate spreads between Canadian andU.S. securities when monetary authoritiesattempted to stabilize the Canadian/U.S. dollarexchange rate.

Nevertheless, Canadian interest rates drop-ped in 1986, although not as much as in theU.S., and not sufficiently to offset the restric-tive impact of fiscal policy, slower exportgrowth and falling oil and grain prices.

Efforts to reduce the federal governmentdeficit were successful, as a drop of over$5 billion was recorded on a national accountsbasis. However, uneven growth in the coun-try's various regions required the adoption ofshort-term measures to reduce the impactof difficult economic conditions. Consequently,the deficit problem will only be resolvedgradually

EXCHANGE RATEICA S versus US SI

2 CONSUMER PRICE INDEX

in IN CANADAPh change over 1 year)

Source . Statistics Canada

8,2

Source Statistics CanadaEIGHT

HOUSING STARTS IN QUEBECtin thousands of unAst

The Quebec Economy

Quebec's economic performance in 1986was strong for a fourth consecutive year.Real gross domestic product growth was esti-mated at between 3.5% and 3.9%, onlymarginally lower than that of 1985.

Residential construction continued toincrease owing to the slight drop in interestrates_ Housing starts reached 60,000 units,for the highest level since 1976.

In contrast with developments in someother regions of Canada, employmentand investment in Quebec were not directlyinfluenced by the drop in world oil prices.As in Ontario, Quebec has a diversified indus-trial structure and benefited from continuedgrowth of manufacturing sector invest-ments. Statistics Canada's mid-year report oninvestment intentions revealed thatmanufacturing sector investments roseby 17% in current dollars.

Employment increased by 2.2%, bringingthe unemployment rate at year-end downto 10.4%, compared to 11.7% a year earlier.Weekly salaries increased by an averageof 2.5%. Although these increases were notas high as in 1985, disposable income grewsufficiently to maintain consumer confidence,resulting in a sustained rise of consumerspending.

Source Sulam Canada

No.:4E

Asset Mix

The Caisse de dépôt et placement duQuebec's assets have now reached $25 billionat book value. The weighting of these assetsbetween variable income securities (shares,convertible securities and real estateinvestments) and fixed income securities(bonds, mortgages and short-term invest-ments) is an important factor which affectsthe yield of portfolios managed by the Caisse.Seeking the best balance possible betweenthe various types of financial assets, based oneconomic scenarios, plays an essential rolein creating synergy It helps in comparing yieldand risk as well as in choosing a portfoliostructure that can adequately meet thedepositors' actuarial requirements and theCaisse's objectives.

Since 1980, the proportion of variableincome securities within total assets undermanagement has increased significantly, risingfrom 11.9% at the end of 1979 to 28.1% in1986. Over the past few years, the Caissesinterest in foreign securities has grown. Thispolicy meets the objective of making the port-folio structure more comparable to that ofNorth American public pension fund portfolios,and consequently of reducing the overall riskthrough a greater diversification of the variousfinancial vehicles available.

The evolution of the breakdown of thesevarious types of investments reflects theCaisses preoccupation with ensuring that itsdepositors receive a long-term optimal returnabove inflation, through active management.

TEN

RETURNTable 5 shows the internal rate of return

obtained for the General Fund and for totalIndividual Funds It also indicates the time-weighted rate of return for each type ofinvestment, which helps evaluate the fundmanagers contribution to the growth offunds. This does not take into account thetiming variable for deposit receipts overwhich the fund manager has no influence.

I EVOLUTION OF INVESTMENTSFOR TOTAL ASSETSUNDER MANAGEMENTas at December 31(at hook value - in percentage,

ri RETURNlat market value - in percentage)

1986

Compound average annual ratefor the period

1983-1986i4 years)

1979-198618 years)

INTERNAL RATE OF RETURN

Total depositors holdings 13.5 16 0 142General Fund 14.2 16.3 142Individual Funds 12.1 15.5 14 1

WEIGHTED RATE OF RETURN

financial assetsBonds 14.1 16.8 13.5Mortgages 12.7 14.8 126Canadian equities 11.2 16.5 15.5Foreign equities 32.9 -Real estate investments 15.5 15.8

at market value - in percentage)

ELEVEN

GROWTH OF MAJOR WORLD STOCK MARKET INDICESlin local currencies, excluding dividends - in percentage)

Indices Location 1986 1982-1986

XXM Montreal 3.5 88.83Standard & Poors 500 United States 14.61 102.63CommerzBank Germany 4.89 203.84F.T. Industrials England 18.86 123.45Nikkei Dow Jones Japan 42.61 162.52Morgan Stanley Capital International World* 39.09 168.41

in US S

INTERNAL RETURNThe Caisse obtalned a 13.5% internal rate of

return for total funds under its managementin 1986. The General Fund earned a 14.2%return versus 12.1% for total IndivAualFunds. This return differential is due to thegreater proportion of bonds and mortgageloans receivable held in the General Fund,which have yielded a better return thanCanadian equities. It is obvious that thedeflation cycle characterizing the currentperiod favoured bond investments. However,the distinction is almost unnoticeable forthe average for the last eight years, the returndifferential being 0.1%.

TIME-WEIGHTED RETURNIn 1986, the Caisses portfolio managers

obtained better returns than all the variouscomparable financial market indices. The bondportfolio yielded 14,1%, which comparesfavourably with the 12.3% return of theMcLeod, Young, Weir IMYVV) medium-termindex_ The Caisse's solid performance ispartly due to the volume and high quality ofU.S. Treasury bills traded which performedbetter than those of the Canadian market.Moreover, for the four-year period ended in1986, the average bond yield was 16_8%,versus 14.8% for the MYW index_ Mortgagerates were much more stable than bondrates and the residential, commercial andindustrial mortgage portfolio recordeda 17.7% return, compared to 10.9% for theMAN mortgage index.

Canadian equity investments yielded 11.2%,exceeding the TSE KO index by 2.2%.

The proportion of foreign equity invest-ments was increased considerably, resultingin a 32.9% rate of return.

Finally, the return on the specialized realestate investments portfolio was 15.5%for the year.

TWELVE

Variable Income Securities

SITUATIONAs in 1985, major world stock markets

moved in the opposite direction to long-terminterest rates. These fell abruptly during thefirst four months of 1986 and reached a rela-tively stable level afterwards. Stock marketsthen progressed well in general while inter-est rates declined, but the peak levels reachedduring the spring only reappeared at the veryend of the year when interest rates begandropping again.

In the light of weak corporate earningsresulting from poor economic growth and avery low rate of inflation, the capitalizationrate constituted the principal driving forceof the stock markets- Only the Japanese stockmarket maintained a strong pace throughoutthe year, influenced by the large availabilityof funds in that country • major world stock market indices. The drop in

Canadian stock markets performed below

energy prices adversely affected not only oiland gas company shares but those of numer-ous Canadian businesses in sectors directly orindirectly related to the energy sector. Invest-ors lost interest in bank, pipeline, uranium andcoal sector shares. Utilities also suffered dueto lower returns as a result of falling interestrates. Heavy industries and mining enter-prises were affected as well, reflecting slug-gish economic activity and world productionovercapacity.

Furthermore, golds, forest and consumerproducts, as well as services, all exceededgeneral stock indices. Companies operating inthese sectors benefited from the relativestrength of consumer spending and the dropof the U.S. dollar against the other majorcurrencies.

THIRTEEN

M A M. 0 N D

•XXM MontréalTSE 300 Toronto

1,3:0

RETURNIn 1986, the Caisses Canadian equities port-

folio yielded a total return of 11.2% includingdividends, compared to 9% for the TSE 300index. The foreign equities portfolio recordedan overall return of 32.9%, owing to thestrength of foreign markets and the devalua-tion of the Canadian dollar against Japaneseand European currencies.

Over the last eight years, Canadian equityinvestments provided a 15.5% total annualreturn, as opposed to 15.7% for the TSE 30C

For the period from 1968 to 1986, theportfolio's annualized return was 12.5%,compared to 11% for the TSE 300 .

CANADIAN EGUITIESThe market value of the Caisses Canadian

equities portfolio totalled $7.5 billion at theend of 1986, for an increase of $1 billion overthe previous year.

The structure of this portfolio continuedto favour the less cyclical sectors of theeconomy throughout the year. New invest-ments were concentrated in the financialservices, utilities, consumer products andservices sectors rather than the naturalresources and heavy industries sectors.

8 XXM AND TSE 300 INDICESIN 1986

FOURTEEN

BREAKDOWN OF FOREIGNINVESTMENTSas at December 31, 1986tat market value— m percentage

• Europe 35.8United States 38.1

• Asia 26.1

FOREIGN EQUITIESThe need to optimize return versus risk

along with the internationalization ofstock markets and activities of Canadiancorporations have led the Caisse to makea porton of its investments in foreign markets.At the end of 1986, foreign equities reached$1,022 million at market value, as opposedto $410 million and $148 million at the end ofthe two preceding years. The geographicdistribution of the portfolio was as follows$392.7 million in the United States, $256 mil-lion in Asia and $373.3 million in Europe.For European countries, the breakdown ofstock market investments for the overallportfolio was 8.8% in Germany, 8.6% inEngland, 4.8% in Switzerland, 3.5% in Franceand 2% n Holland and Italy

The synergy between the Caisse's foreignand Canadian investments is becomingincreasingly important both in terms of qualityand total return. Portfolio managers andanalysts have access to more diversifiedinformation, permitting a much more com-prehensive analysis of economic, industrialand financial variables.

FIFTEEN

CORPORATE INVESTMENTSOver the past few years, the Caisse has

been pursuing its efforts to invest in theshare capital of Canadian and Quebec enter-prises. Corporate investments are investmentsthrough which the Caisse acquires animportant ownership interest in the commonshares of a large or medium-sized business,without however exceeding 30%.

These investments, which are generallyconcluded in association with private groupsand with the support of corporate manage-ment teams, are particularly aimed atmeeting the dual objective of the Caissesmandate which is to provide an optimalfinancial return while ensuring substantial,positive economic repercussions. At the endof 1986, corporate investments included some$1.5 billion invested in large businesses,$125 million in Quebec medium-sizedbusinesses, $35 million in venture capitaland $15 million in international corporateinvestments.

Several important transactions have beenmade throughout the year, including the saleof the Caisses interest in Canron to Ivaco andof a portion of its interest in Noverco to anew holding company set up by Canam Manacand Un igesco.

Auberges des Gouverneurs Inc. was listedon the Montréal Exchange in Decemberfollowing a first public share offering. Thisachievement crowns the turnaround effortundertaken by the Caisse in 1982 in coopera-tion with its partners: National Bank ofCanada, Assurance-vie Desjardins, TrustGeneral du Canada as well as a new manage-ment team.

The Caisse also made sizeable investmentsin Cascades, CDC Life Sciences, MemotecData and Onex Capital, to name just a few.

SIXTEEN

BREAKDOWN OF REAL ESTATEINVESTMENTSas at December 31, 19436at market value - in percentagel

4111 ).0-

• Office buildings 53.1• Cornmercia1

27.8Rewlential

5.0• Industrial

5.5• Hotels

4.8• Undevetoped land 38

MEDIUM-SIZED BUSINESSESIn an environment where an increasingly

large number of participants are involved infunding the development requirements ofmedium-sized businesses, which are eitherlisting their shares or whose shares are noweligible under the Quebec Stock SavingsPlan, the Caisse was able to increase thenumber of its corporate investments in thisdynamic sector of the economy. Privateinvestment remains an interesting complementto public financing, whether it is made before,during or after the listing of a company'sshares on the stock exchange.

The Caisse made approximately 15 newinvestments in sectors such as packaging,plastics, financial services, construction andprinting as well as distribution and industrialprocessing.

In addition to this share portfolio of amarket value of over $125 million at the endof 1986, the Caisse granted some $100 mil-lion in loans.

The securities of several companiesor subsidiaries of companies included in theCaisses portfolio, such as Auto Point, BoisFranc Royal and National Pagette, werelisted on the stock exchange in 1986.

It is worth noting that the Caisse strives toencourage the development of Quebecmedium-sized businesses by injecting capitalto enable these enterprises to undertakemajor capital expenditure projects, acquisitionsor to consolidate their operations withoutcompromising their viability because of anexcessively high level of debt.

The Caisse has a team of approximately tenemployees specialized in investments inmedium-sized businesses, serving Quebecentrepreneurs who are seeking financing fortheir enterprises' development.

VENTURE CAPITAL ANDTHE INTERNATIONAL SECTOR

The competitive and constantly changingcapital market has led the Caisse to devotemore attention to two investment sectors:venture capital and international corporateinvestments.

In the first sector, the Caisse participated insetting up three new venture capital compa-nies to finance enterprises that are relativelynew or have potential for exceptionallyrapid development and whose level of riskappears high.

Through its international corporate invest-ments, the Caisse intends to contributeto the international development of Quebecenterprises and support the setting-up ofinternational groups in Quebec.

SEVENTEEN

REAL ESTATE INVESTMENTSDuring the year, the Caisse acquired major

interests in three well-known Montrealbuildings: Westmount Square, 1200 McGillCollege and the Stock Exchange building(Victoria Square). Through its subsidiary,Societe Immobilière Trans-Quebec, it alsoacquired interests in shopping centers inPort-Cartier, Sainte-Anne-de-Beaupré, Saint-Raymond-de-Portneuf and Saint-Georges-de-Beauce as well as an office building inQuebec City.

In 1986. the Caisse also took part in severalreal estate development projects in associa-tion with renowned developers and partners.These include Place Montreal Trust, locatedin downtown Montreal , and a major residen-tial project an Nun's Island in the city ofVerdun.

Furthermore, Societe Immobilière Trans-Quebec has set up a portfolio with a view toacquiring real estate valued at $5 million orless. To maintain a healthy geographicdistribution of its investments and favour theacquisition of medium-sized real estate, theCaisse became associated in this project withtwo Quebec pension funds.

As at December 31, 1986, the Caisse's realestate investments were up 35%, aggregating$420 million versus $311 million for theprevious year and their market value wasestimated at over $531 million. A 15.5% returnwas recorded for this portfolio, including 8%in terms of current yield and a 7.5% increasein value.

At the end of the year, the breakdown ofreal estate investments among the varioussectors was as follows: office buildings53.1%, commercial 27.8%, residential 5%,industrial 5.5%, hotels 4.8% and undevelopedland 3.8%.

EIGHTEEN

Fixed Income Securities

SITUATIONIn 1986, falling world energy prices

led to a lower rate of inflation in Canada aswell as in other industrialized countries. Con-sequently, concerns about inflation, on whichinterest rates greatly depend, were substan-tially appeased, resulting in a signi ficant dropin interest rates at the beginning of the year.In three months, the yield on gouvernementdu Quebec long-term bonds fell by more than100 basis points. Standing at 10.6% inJanuary the yield on these securities droppedto 9.35% in April. Since then, long-terminterest rates have not recorded any majorfluctuation. A slow correction process foreconomic aggregates slackened the increasein production to 3%. Major adjustments arerequired to achieve a new trade balance onworld markets. Although monetary policieswere expansionary, they exerted very littleinfluence on long-term interest rates, whichremained subject to uncertain world energyand resources prices.

BOND INVESTMENTSThe Caisses annual investment program

focuses on provincial bond issues and otherQuebec public sector issues. The Institutionalso contributes to maintaining an orderlysecondary market for securities issued andguaranteed by these issuers. The bond port-folio's profitability depends, first, on the abilityto maintain a medium-term duration as anoverall average and, second, on the sound andconsistent management of high liquiditysecurities.

The increasing internationalization of bondmarkets, as a result of the establishmentof world distribution networks, influenced theCanadian bond market during the year,which actively joined the internationalizationmovement in 1986.

These developments, as well as the widerange of new investment vehicles and theaccessibility of new markets, have requiredmajor adjustments as far as portfolio man-agement is concerned. These changes wereparticularly evident in terms of optimizing thereturn on investment and controlling riskssuch as the volatility of interest rates,foreign exchange risks and credit risks.

NINETEEN

1 SUMMARY OF FIXED INCOME SECURITIES PORTFOLIOSACCORDING TO ISSUERSas at December 31, 1986

SECURITIES

Permanent investment basisIssued by the gouvernernent du QuebecGovernment guaranteedGuaranteed by grantsMunicipaatres and school boardsCorporate and otherMortgages

Temporary investment basisGovernment issued or guaranteed

CanadaUnited StatesOthers

Total

The Caisse closely monitored these newdevelopments, and consequently becamemore involved in the trading of securitiesissued by Quebec bodies on foreign markets,either at the time of the initial issuanceof these securities or upon their sale. TheCaisse was also very active on the U.S.government bond market, as it pursues astrategy whereby, as has already beenstated, it strives to acquire very high liquiditysecurities on a temporary basis of up to 15%of fixed income investments, in order toprotect the overall bond portfolio. At the endof 1986, those securities, consisting mostlyof bonds issued by the Canadian andU.S. governments, reached 14.8% of totalfixed income investments, as indicatedin Table 11.

At market value Averagenominal

rate(%)

Averagematurity

(years)

Modifiedduration

(volatility)in *flansof dollars)

8,344.4 484 11.30 9.95 5.6226634 15.4 10.67 9.86 5.541,0684 6.2 11.65 6.33 4.22

841.5 4.9 10.75 5.10 3.52237.9 1.4 11 49 5.47 3.57

1,524,2 8.9 11.16 4.84 2.67

980.0 5.7 9.77 4.91 3.6513328 7,7 6.54 5.11 361

235 7 14 978 6 77 399

17,228.3 100.0 10.69 8.21 4.82

EVOLUTION OF YIELDIN 1986in percentagel

BO

N

• 91-day Treasury bills -Canada

• 10-year bonds -Canada

91-day Treasury bills -Quebec

10-year bonds -Quebec

Source Bank of Canada and C.D.P0

ill. SUMMARY OF ACQUISITIONS OF NEW BONDS ISSUED BY THEGOUVERNEMENT OU QUEBEC AND QUÉBEC PUBLIC SECTOR IN 1986(at par value - in millions of dollar0

Amounts of issues Acquisitions by the Caisse

Canadianmarket

Othermarkets

Total Canadianmarket

% ofCanadian

market

Othermarkets

GOUVERNEMENT DU QUEBECRegular issue 1,712.0 1.2394 2,951.4Refunding - 1,2133 1,2133

1,712.0 2,4527 4,164.7 825.0 48.19

HYDRO-QUÉBEC AND OTHERGOVERNMENT CORPORATIONSRegular issue 1,151.9 638.9 1,790.8Refunding 621_5 1,6346 2.256.1

1,773.4 2,273.5 4.0461 120.0 6.77 13.9

MUNICIPALITIES AND GUARANTEEDBY GRANTSRegular issue 1,729.4 442 3 2.17 7 222 4 12 86

5,214.8 5,168.5 10,383.3 1,167.4 22.39 13.9

TWENTY

Bond purchases from the gouvernementdu Quebec, Hydro-Quebec and other govern-ment corporations on the primary marketaggregated $959 million. Acquisitions of newissues by municipalities and guaranteed bygrants totalled $222 million.

As at December 31, 1986, the market valueof bond investments in the Caisse's portfoliowas $15.7 billion - an increase of $1.2 billionover 1985- while the average maturity was8.6 years, the average coupon was 10.67%and the modified duration was 5 years.

Total bond investments provided a 141%rate of return for 1986, while the MYVVmedium-term index only reached 12.3%.

MORTGAGE INVESTMENTSFollowing the temporary increase in interest

-ates during the first half of 1986, mortgagerates reached and maintained the lowest levelin almost one decade.

BREAKDOWN OF MORTGAGEINVESTMENTSas at December 31, 1986I at market value - n percentagel

Affordable housing prices and strong con-sumer confidence were favourable to housesales. Confidence was also high in the busi-ness sector and users of commercial andindustrial space, as well as investors, reactedpositively to the economic climate. Thefinancing of existing properties, especially ofcommercial and multiple-dwelling buildings,was very active. This vigour ensued from lowinterest rates which resulted in increasedproperty values, making it easier to sell orrefinance properties for higher amounts.

Furthermore, as the memory faded of thedeplorable economic situation of 1981-1983,Quebec institutional investors started tobecome more active. As a result, the con-struction and financing of commercialproperties picked up during the year.

Residential borrowers favoured short-termrates when choosing their loan maturities.Also, loan renewal operations became agreater preoccupation for lenders. The moreacceptable level of mortgage rates, however,led commercial borrowers to seek longerborrowing terms and loan maturities in orderto better match their financing with theleases negotiated.

All of the above factors contributed tointense activity for mortgage lenders andfierce competition regarding interest rates andloan amounts. As in 1985, this phenomenonwas accentuated by the large availabilityof funds for this market.

The Caisse's mortgage operations achieveda record high in 1986, with mortgage loansfor a total amount of $475 million, dividedamong the residential, commercial andindustrial sectors. Loan conditions are compet-itive with the various markets. The Caissealso favours new construction proiects andmakes sure its loans are availablethroughout Quebec.

A major portion of mortgage investmentswas made through four representatives: Fidu-cie Prêt et Revenu, Fiducie du Quebec, TrustGeneral du Canada and Sherbrooke Trust.With their business network and variousbranches, these trust companies are betterplaced to serve the residential market.

The Caisse's mortgage investments port-folio amounted to $1.5 billion at market valueat year-end. The breakdown was as follows:residential sector, 57%, commercial sector,37.6% and industrial sector, 5.4%.

Also, as at December 31, 1986, the averageinterest rate of mortgage loans was 11.2%,while the average maturity was 4.8 years.During the year, the Caisses total mortgageinvestments yielded a 12.7% return, comparedto 10.9% for the MW mortgage index_

• Resrdental 5101 Comrnercral 31.6

Industnaf 54

TVVENTY-ONE

The federal government's large budget def-icit as well as falling oil prices resulted inactive speculation on our currency in the earlypart of the year, forcing monetary authoritiesto react strongly by radically tightening theirmonetary policy As a result, interest ratesrose rapidly, and spreads between Canadianand U.S. rates were greatly widened,increasing by more than 450 centesimal pointsat the time of the auction of three-monthTreasury bills. Although these spreads werereduced following the general decline ofinterest rates in Canada and the United States,they still remained relatively large, mainlyas a result of the higher rate of inflationin Canada.

The Caisse has a large proportion ofQuebec and Canada Treasury bills as highquality securities in its overall money marketinvestments portfolio. The large numberof short-term securities issued by the gouver-nement du Quebec and the Canadiangovernment strongly squeezed interest ratespreads for private sector securities. Also,the credit demand was rather limited in theprivate sector.

MONEY MARKET INVESTMENTSinterest rate movements on the Canadian

money market were characterzed by astrong upward trend during the first quarter of1986 The bank rate set by the Bank of Can-ada peaked at 12.1%. It then dropped as lowas 8.43% during the second quarter and,fluctuating moderately, It remained at approxi-mately that level during the second half ofthe year

During the year, the Caisse devoted moreattention to its money market investmentsto attempt to intensify its operations on theMontreal market and optimize the return,while maintaining a good balance betweenthe liquidity and quality of these investments.

As at December 31, 1986, total short-terminvestments reached $1,4 billion, which rep-resents 5.6% of the Caisses overall assets,against 8% at the end of 1985. The averageweighted rate of return for all portfoliostotalled 8.1%, while the average maturitywas 88 days.

15 BREAKDOWN OF SHORT-TERMINVESTMENTSas at December 31, 1986at par value - in percentage)

.11111110Treasury bills

52Commercial papers 22

• Bank papers

21• Other

5

TWENTY-TWO

Depositors

• As at December 31, 1986, the marketvalue of total depositors holdings with theCaisse reached $27.9 billion, for an increaseof $2.9 billion during the year. The bookvalue of these holdings totalled $24.9 billion,up $2.6 billion over 1985. On the whole,this increase is due to the reinvestment of86.5% of the $3 billion in income. However,net disbursements of $415 million wererecorded. Despite the net contributions of$321 million made by some depositors,the effect of withdrawals of $736 millionmade by others, including $556 million by theRégie des rentes du Quebec alone, wasnot completely offset.

The Caisse de dépôt et placement duQuebec manages the funds it is entrustedwith by various public pension funds and insur-ance plans applying to mare than 3.7 millionQuebecers, by virtue of various legislationadopted by the Assemblée nationale.

While the administration of these plans isassumed by the individual organizations con-cerned, the Caisse has the legal responsibilityand the mandate to oversee the investment,protection and growth of their assets. TheCaisse receives the funds it is entrusted within the form of demand, term or participationdeposits, at the depositor's option. Demandand term deposits constitute indebtednesstowards depositors and bear interest. Partici-pation deposits give the holder a share inthe net equity and net income of a particularFund: their value varies according to thevalue of the Fund with respect to which theyare made_

The Caisse has nine Funds: the GeneralFund and eight Individual Funds. The GeneralFund is a pooled fund which includes severaldepositors, while each Individual Fund hasonly one. Of its eleven depositors, seven accu-mulate reserves to meet future commitmentsand the other four entrust the Caisse withliquid assets.

During the year, the Caisse met periodicallywith its depositors in order to be better in-formed of their needs for liquid assets and toupdate them on results obtained. The invest-ment policy pursued thus takes into accountthe particular aspects of the various deposi-tors' plans, according to the Caisses mandateto achieve profitability and encourageQuebec's economic development.

TWENTY-THREE

16 BREAKDOWN OF THE FUNDS ASSETS ACCORDING TO TYPE OF INVESTMENTas at December 31, 1986

11 fin millions of dollars)

At bookvalue

At marketvalue

GeneralFund'

IndividualFunds Total

oftotal

Netchange Total

INVESTMENTS

Bonds 10,430.8 4,293.6 14,724 4 589 1,050.9 15.704.1Mortgages 532.0 973.8 1,505.8 6.0 247.3 1,524.2Shares and convertible securities 3,305.5 3,236.3 6,541.8 26.2 1,517.0 8,469.2Real estate investments 200.1 147.7 347.8 1.4 32.2 429.6Short-term investments 892.8 456.4 1,349.2 5.4 (251.5I 1,349.5Deposits in the General Fund 52.1 521 02 1142.6) 52.1

15,361 2 9,159.9 24,521.1 98,1 2,453.3 27,528.7Other assets 325 5 147,4 472 9 19 38.8 472.9

1986 15,686.7 9,307,3 24,994.0 100.0 2,492.1 28,001.61985 14,308.0 8,193,9 22,501.9 100.0 2.341_0 25,203.3

Net change 1,3787 1,1134 2,492_1 — 2,798.3

GENERAL FUNDThe principal depositor to the Caisses

General Fund is the Régie des rentesdu Quebec, which ensures the administrationof the universal pension plan for Quebecerscreated in 1965.

Despite an increase in its holdings ofalmost $936 million at book value during theyear, the Régie des rentes du Quebec had tomeet current requirements by withdrawing$556 million from some $1.5 billion in income.In the previous year, $549 million was with-drawn. At year-end, the Régie des rentes duQuebec's holdings deposited with the Caisse,standing at $13.5 billion at market value,accounted for 48.5% of total depositors' hold-ings. An increase in contributions of 0.2%per annum for the next five years came intoeffect in January 1987: consequently, contribu-

'In this table, the assets of the General Fund have been reduced by total demand deposits of the Individual Funds and accrued interest thereon tions for 1987 rose from 3.6% to 3.8% ofcontributory earnings. This increase will slowdown the rate of withdrawals expected tobe made by the Régie des rentes du Quebecduring future years.

TWENTY-FOUR

18 DISTRIBUTION OF TOTAL DEPOSITORS'NET INCOME AND CONTRIBUTIONSlin millions of dollars)iii EVOLUTION OF INVESTMENTS

as at December 31at book value - in millions of dollars}

The Régie de l'assurance automobile duQuebec, formed in 1977, is the second largestdepos[tor to the General Fund. li administersthe general plan which provides insuranceagainst bodily harm resulting from trafficaccidents. Contributions are levied yearlyfor benefits to be paid out to victims. As pro-vided by law, the Régie must entrust the fundsreceived from insured participants to theCaisse. As at December 31, 1986, the Régiede l'assurance automobile du Quebec's hold-ings reached $3.8 billion at market value,or $3.4 billion at book value, for an increase of$499 million over the previous year. Thisincrease is due to income of $409 million and$90 million in new contributions. The planrepresents 13.7% of total depositors' holdingswith the Caisse and 22% of the GeneralFund at market value.

Among the unitholders In the General Fundis the Fonds d'assurance-prêts agricoles etforestiers (FARAH which maintains a minimum$10 million reserve as security for the loansit grants.

• Fixed income securitieslbonds, mortgages, deposits and snort-term rrneestments1

• Variable income securitiesishares. convertible woollies, real estate nvestrnentsl

• Net contribubonsIdeposits less withdravvals1

• Net incomeleve,stment income less administrative expenses)

TWENTY-FIVE

19 DEPOSITORS

Abbre-viation

Firstdeposit

Number olcontnbotors'

Depositors'holdings'

Régie des rentes du Quebec FRO 1965 2.840,000 13,557.6Commission administrative des regimes de retraite et d'assurances CARRA

Government and Public EmployeesRetirement Plan RREGOP 1973 295,000 6,286.0

General Retirement Plan for Mayors andCouncillors of Municipalities 1975 580 190

Individual plans 1977 140 274Régie de l'assurance automobile du Quebec MAO 1978 3,700,000 3,1342.9Commission de la santé et de la sécurité do travail CSSTOffice de la construction du Quebec OCO

1973 157,500 2,287.3

Supplemental Pension Plan for Employees of theQuebec Construction Industry 1970 89,000 1,914.8

Fonds d'assurance-prêts agricoles et foresters FAPAF 1978 1,471 11.3Régie des assurances agricales du Québec 1968 39,000 07Régie des marchés agricoles du Quebec 1967 66 12Régie de l'assurance-dépôts du Quebec 7969 1,432

'estimate'as al Dec ember 31. 1986- ai market value - e millions of dollars

INDIVIDUAL FUNDSThe Government and Public Employees

Retirement Plan (RREGOP) was set up in1973 for public sector employees including civilservants as well as employees of the educa-tion and social affairs sectors. It is managedby the Commission administrative desregimes de retraite et d'assurances I CARRAI.Since its creation, the plan has accumulated$5.5 billion, representing 21.9% of the totalholdings of the Caisses depositors and mak-ing the RREGOP the second largest depositorwith the Caisse. At market value, thisamounts to $6.3 billion or 22.7% of depositors'holdings. During 1986, the plan's assetsincreased by $836 million, of which $230 mil-lion arose from new contributions and thebalance from reinvested income. The plan fea-tures two accounts: one for unionizedemployees and another for non-unionizedemployees, and the respective holdings ofthese accounts are included in IndividualFunds 301 and 302.

TWENTY-SIX

CARRA also administers the General Retire-ment Plan for Mayors and Councillors ofMunicipalities whose assets of $19 million atmarket value are invested in Individual Fund304. ln addition, several Individual plans areincluded in Individual Fund 303 with assetstotalling $27 4 million.

The Caisse also manages the holdings ofcertain other supplemental pension plans,including those of the plan for employees ofthe construction industry The type of bene-fits paid out by this plan and the source ofcontributions which characterize it make itrather special. As at December 31, the assetsof this plan totalled $1.9 billion at marketvalue, allocated among three accounts:the active participants' account (Fund 311 —which includes all non-retired employees), theretired participants' account (Fund 312 —which includes all retired employees of theindustry) and the additional contributionsaccount (Fund 313— which includes non-retiredemployees who pay additional contributions).During the year, despite withdrawalsof $31 million, a $173 million increase wasrecorded for the plan, based on income of$204 million. Nevertheless, the growth of thisplan has been slowing down over the pastfew years.

20 BREAKDOWN OF TOTAL DEPOSITORS' HOLDINGSas at December 31lai market value - in percentagel

1986 1985 1984 1983 1982

Régie des rentes du Québec 48.5 496 509 519 53.8Commission administrative des régimes

de retraite et d'assurances 22.7 21.7 20.3 19.5 17.5Régie de l'assurance automobile du Québec 13.7 13.2 12.2 11,1 10.5Commission de la santé et de la sécurité du travail 8.2 87 9.5 101 10.2Office de la construction du Québec and other depositors 6.9 68 7.1 74 8.0

i- vvENTY-SEVIN

I DISTRIBUTION OF EACH DEPOSITOR'SNET INCOME AND CONTRIBUTIONSIN 1986Iln millions of dollars)

Office daisconstructionda Québec

liege des rentesdu Quebec

Commissionadministrativedes regimesde retraiteet d'assurances

Régie derassuranceautomobiledu Quebec

• Net income

• Net contributions

• Total

The Commission de la santé et de lasécurité du travail (MT) entrusts to theCaisse the funds it accumulates to meet work-ers' compensation and occupational dis-ease benefits it is required to pay. The Com-mission receives contributions from allemployers for insurance against accidentsoccurring in their sector of business. As atDecember 31, 1986, the Commission hadassets of $2.3 billion at market value, repre-senting close to 8.2% of total depositors' hold-ings. The Commission's reserve increased by$100 million despite withdrawals of $48 mil-lion from income of $248 million. Neverthe-less, several changes made to the plan havelimited the growth of this reserve.

Nun) y-EIGHT

Administration

ADMINISTRATIVE EXPENSESIn 1986, the Board of Directors

reassessed the method for allocatingadministrative expenses to the Funds managedfor the various depositors. This change hasno impact on the net performance of theCaisse's total investments. It mainly consistsin allocating administrative expensesaccording to the market value of investmentsinstead of their book value. Furthermore,expenses that are directly related to themanagement of a particular category ofinvestment are charged to the incomegenerated by these investments rather thanbeing attributed to the overall portfolio. In1986, expenses charged directly to incometotalled $4.1 million. The Caisse now followsthe methods used by most pension fundmanagers in allocating administrativeexpenses.

Salaries and employee benefits remainedthe highest expenditure item, totalling 56%.This item represented one-third of the overallincrease in administrative expenses. Thecomputer services upgrading program, includ-ing the depreciation of new equipment andprofessional fees for systems conversion andthe development of new applications,accounted for another third of the increase.

VENTY-NINE

HUMAN RESOURCESThe use of increasingly diversified

investment vehicles, the activity on newinternational markets and increased financingof Quebec enterprises have substantiallymodified the Caisses needs in terms of humanresources recruiting and training.

Consequently, employees have been encour-aged to participate in various professionaldevelopment programs. As a result, 50% ofemployees registered in seminars or othertraining or information activities, It should alsobe noted that ten employees are membersof the Institute of Chartered Financial Analystsand 14 others are registered in the Institute'sprogram.

In 1986, the Caisse continued to providefinancial support to brokerage firms oper-ating in Quebec, encouraging them to hireand train young university graduates in theirresearch departments. Some 15 brokeragefirms took part in the program, allowingapproximately 30 graduates to find employ-ment in this business sector and acquirean interesting experience within Quebec'sfinancial community. Given the success anddemand for this project, the Caisse decided tocontinue the program in 1987.

DATA PROCESSINGDuring 1986, Data Processing Services

upgraded services with decentralized equip-ment, in addition to providing access toinformation through the central computer

The central computer conversion processwas also initiated. It will allow the Caisse toadequately meet the needs resulting from theincrease in the volume of information gener-ated by higher assets under management, andgive access to improved data for the man-agement of the portfolios. Systems and dataconversion work will be fully completedduring 1987. Also, development efforts havebeen mainly oriented towards implementing anew system for the management of equityinvestments.

COMMUNICATIONSThe Caisse pursued its communications

policy in 1986, providing more information onits operations and investments than mostfinancial corporations.

It also continued to devote efforts to betterinform the population on its role, operationsand business, especially through public rela-tions activities in Montreal, Sherbrooke,Trois-Rivières, Chicoutimi, Saint-Félicien andRimouski in particular.

Moreover, the Caisse is the official sponsorof the largest North American savingsand investments show held in Montreal andQuebec City as well as of a very popularfinancial information television program broad-casted by the Quebec public network.

With regard to business people and thevarious organizations associated withmedium-sized businesses, the Caisse set upa dynamic marketing-communications plan.A quarterly bulletin was published during theyear to promote its financing and corporateinvestment policies as well as the competitivebenefits it offers. The bulletin, entitled"Savoir-faire", is intended for the businesssector.

For four years now, the Caisse has beenpublishing "Cycles et tendances", an analysisof economic conditions and forecastsprepared by its Economic Research Services.This increasingly popular publication isissued twice a year, in June and December,and is available to the general public.

THIRTY

Members of the Board of DirectorsJean CampeauChairman of the Board and General Manager

Claude LegauttPresidentRégie des rentes du Quebec

Judge Richard BeaulieuPresidentCommission municipale du Quebec

Raymond BiaisPresidentLa Confédératico des caisses populaires et d'économieDesjardins du Quebec

Louis LabergePresidentFederation des travailleurs du Quebec

Andre MarierGeneral ManagerSociete québécoise d'initiatives agis-alimentaires

Benoit MorinGeneral Secretary and Clerk - Conseil exécutif

Robert NormandDeputy Minister - Ministère des Finances

Fernand ParePresident and General ManagerLa Solidarité, Compagnie d'assurance sur la vie

Pierre PeladeauPresidentOuebecor Inc

Gaston PelletierTreasurerCorporation financière du Saint-Laurent

Management PersonnelAlain AuclaarHuman Resources

Yves BenoitAdministration and Data Processing Services

Normand BernierInter-Cgoorate Relations - Internatonal Sector

Robert CiamarroBond Investments

Jean-Claude CyrReal Estate Investments

Serge DesjardinsI menial Audit

Real DesrochersCorporate Investments - International Sector

Andre DuchesneBard Investments

Pierre Fortiertoroorate Investments - Large Businesses

Philippe GabelierCOMMullfCatellS

Dents GirouxCorporate Investments

Claude L LangevinStock Market Investments

Frederic LecoqStock Market Investments

Richard LesageEconorrnc Research Senates

Gody LienhardResources and Spolies

Walter MurkensDepositors' AffairsDenis OuelletStr.eK Market Investments

Marcel PaquetteCorporate Investments - Venture Capita

Serge PiquetteMortgage Investments

Normand ProvostCorporate Imestments - medium-Sued Businesses

Alain TessierAccounting ServIces

Senior Managementchalr,,, of rie flood and General ManagerJean Campeau

Senior vice-PresidentsClaude Feriandkzed income Investments

Michel GrignonVanade income Investments

Michel NadeauPlanning and Depositors Affairs

Jean-Claude ScraireLegal and Corporate Attars and Real Estate Investments

Jean TrudelAdministration and Control

SecretaryMarcel Cornu

Pictured with Jean Campeau. in the usualorder Michel Nadeau, MichelGrignon, Claude Ferland. Jean Trudel andJean-Claude Scraire

THIRTY-ONE

Combined Summary Financial Statements

BALANCE SHEETas at December 31, 1986in thousands of dollars)

ASSETS

InvestmentsBondsShares and convertible securitiesMortgagesReal estate investmentsSho rt -term investments

Other assets

LIABILITIES

DEPOSITORS HOLDINGS

General FundIndividual Funds

STATEMENT OF INCOME AND EXPENDITUREfor the year ended December 31, 1986lin thousands of dollarsI

INCOME

Investment incomeGains and fosses on sale of investmentsOther income

EXPENDITURE

Administrative expenses

BALANCE OF INCOME

ALLOCATION OF INCOME

Interest on demand and term depositsNet income allocated to participation

deposit holders

198E 1985

S 14,724,377 $ 13,703,4636,542,480 5,025,4441,467,283 1,257,922

453,590 317,8251,404,665 1,799,223

24,592,395 22,103.877480,037 439,502

$ 25,072,432 $ 22,543,379

S 131,794 $ 153,492

15,642,985 14,213,3759,297,653 8,176,512

24,940,638 22,389,887

25,072,432 $ 22,543,379

1986 1985

5 2,188,866 $ 2,069.539790,493 626.737

644 269

2,980,003 2,696,539

14,625 16,158

2,965,378 2,680,381

13,735 20,559

S 2,951,643 $ 2,659.822

Note Combined filancial statements are provided in the FINANCIAL STATEMENTS AND FINANCIAL STATISTICS booklet of the 1986 Annual Report

THIRTY•TWO

For information: (5)41842-3261Inter.Corporate Relations Department-

Ouébect Canada and International SectorCommunications Department

Should you wish to have an additional copy of this report, pleasecontact the Communications Department.

Ce rapport peut aussi âtre obtenu en français sur demande.

Legal Deposit - 1987Bibliotheque rationale du Ouébec

ISBN 2-55417054-7ISSN 0835-2143

Design and productionOve Design Communication Marketing inc.

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